OGJ Newsletter

Oct. 15, 2007
General Interest - Quick Takes

Ecuador claims 90% of oil ‘windfall profits’

Ecuador’s President Rafael Correa has signed a decree requiring foreign oil firms with operations in his country to pay the treasury 90% of their profits resulting from the rise in global crude prices and not 99%, as earlier stated by official sources.

There was no explanation regarding the change from earlier reports that quoted Correa as saying that by a new decree “it is established that 99% of the windfall oil profits will go to the state and the remaining 1% to companies.”

Under a law passed last year, oil companies and the Ecuadorean government each received 50% of profits whenever prices on international oil markets exceeded prices established in existing contracts.

Correa said last year’s law had to be changed, however, because “it’s not enough for Ecuador to get 50%,” as in the past. He said the new law puts an end to “the distribution system by which for every 100 bbl of oil, the country (Ecuador) would only keep between 46 and 48 bbl.”

According to Correa’s decree, “It’s the state’s fundamental right to defend the country’s natural patrimony and preserve the economy’s sustainable growth.”

The new regulation comes as Ecuador is renegotiating contracts with foreign oil companies, including Petroleo Brasileiro SA, Repsol-YPF SA, and Perenco SA.

Ecuador produces 530,000 b/d of oil. Of that total, 363,000 b/d comes from private oil companies, while the remainder is produced by state oil company Petroecuador.

Changes proposed to OCS pipeline rules

The US Minerals Management Service is proposing revisions to its Outer Continental Shelf pipeline and pipeline right-of-way (ROW) regulations. The new rules would bring the regulations, last revised in 1988, in line with current MMS policies and selected industry practices, it said.

Many industry standards covering pipelines have been revised since 1988, and MMS has issued several notices to lessees and operators containing guidance on applying for, installing, maintaining, and decommissioning pipelines, MMS said.

The proposals include two new safety initiatives. One is a requirement for companies to follow MMS pipeline operations and maintenance manuals as well as pipeline integrity management and personnel training manuals. Another would require a pipeline riser attached to a floating platform to use an independent, third-party review of its design, fabrication, and installation which would be similar to, but separate from, the platform verification program.

MMS said its proposed rule also would increase the ROW bonding amount to more accurately reflect actual pipeline decommissioning liabilities. The proposed revisions would let an ROW holder choose either a $300,000 individual bond or a $1 million area bond covering all pipeline ROW grants held by a company in an MMS OCS region.

The proposals also include an increase in annual rental fees for pipeline ROW grants, currently $15/mile. Guidelines for new rights of use and easement (RUE) and pipeline accessory structures and pipeline accessory structures based on acreage would equal about $125/mile. MMS said the proposed $70/mile rate attempts to strike a balance between the ROW and RUE amounts.

MMS is accepting comments on the proposals, which can be viewed online at www.mms.gov/federalregister, through Jan. 31, 2008.

Ukraine, Gazprom reach deal on gas debt

Ukraine is expected to pay $1.3 billion it owes OAO Gazprom for natural gas by Nov. 1 under an agreement reached Oct. 3 to avoid cuts in gas supplies.

Gazprom has assured Europe that it will not suffer a shortfall in gas deliveries after a meeting between Alexey Miller, chairman of the Gazprom management committee, with Ukraine Energy Minister Yury Boiko. Gazprom had threatened to cut supplies to Ukraine if the arrears were not paid by the end of the month.

According to Russian news reports after the talks, Boiko said, “I hope the situation will stabilize in the near future.”

Europe’s Commissioner for Energy Andris Piebalgs welcomed the resolution, stressing that Europe expects the problem to be solved by Nov. 1.

“Transparency is capital in our relations with gas supply and transit countries,” he said.

Earlier, the European Commission urged Ukraine and Gazprom to speedily resolve the fallout over gas debt payments. It noted that Gazprom had promised to fulfill all existing gas supply commitments to European companies. The commission has invited Russia and Ukraine to discuss energy security in Brussels later this month.

Ukraine has disputed the debt. First Deputy Prime Minister, Finance Minister Nikolai Azarov said Ukraine does not “owe a single cent. The size of debt which it (Gazprom) is talking about is out of the question.”

The dispute escalated as Ukraine prepared for elections and the formation of a new government in which Yuliya Tymoshenko looks set to become prime minister. Russia has been accused of using energy as a foreign policy tool by punishing Ukraine for supporting Tymoshenko, who had a pro-Western stance during the Orange revolution leading to the country’s independence from the fomer Soviet Union.

Industry Scoreboard
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Exploration & Development - Quick Takes

Lease Sale 205 attracts $2.9 billion in high bids

More than $2.9 billion in apparent high bids-the second-highest total in US leasing history-were offered for 723 tracts in the central Gulf of Mexico Lease Sale 205, the US Department of the Interior’s Minerals Management Service reported.

The agency’s previous sale in August, Lease Sale 204 covering the western Gulf of Mexico, attracted high bids of $290 million (OGJ Online, Aug. 27, 2007).

In the latest sale, the first under the newly demarcated central gulf area, MMS received 1,428 bids totaling $5.246 billion from the 84 companies participating.

This sale offered 5,359 tracts comprising about 28.7 million acres in federal areas off Louisiana, Mississippi, and Alabama. Developing these oil and gas rights could result in the production of 776 million-1.3 billion bbl of oil and 3.2-5.2 tcf of natural gas, according to Interior officials.

About 40% of the tracts that received bids are in ultradeep water of more than 1,600 m. MMS said it expected the ultradeep and deepwater areas to receive a high level of interest. It said, “The progress being made both in terms of discoveries and advanced technology provide incentive for operators to explore these frontier areas.”

The deepest tract to receive a bid is Amery Terrace Block 206 in 3,398 m of water.

MMS said BP Exploration & Production Inc. submitted the most high bids, 83 for a total of $107.1 million. Shell Offshore Inc. took second place with 69 high bids totaling $554.6 million. It also submitted the highest single bid of $90.5 million for Walker Ridge Block 7.

Rounding out the top five for high bids were Cobalt International Energy LP with 53 bids totaling $211.3 million, Chevron USA Inc. with 44 at $283.4 million, and Nexen Petroleum Offshore USA Inc. with 30 at $113.6 million.

The top five companies submitting the highest dollar amount of high bids are Shell with high bids totaling $554.6 million, Chevron with $283.4 million, Marathon Oil Co. with $221.7 million, Cobalt International with $211.3 million, and Murphy E&P Co. with $161.1 million.

Based on all the bids submitted, Shell offered the highest dollar amount of $650 million for its tracts. Chevron followed with a submission of $380 million.

Total finds gas on Mahakam block off Indonesia

Total SA has made two natural gas discoveries in the southern part of Mahakam block, 45 km off Balikpapan, Indonesia.

Total said both well-East Mandu-1 and West Stupa-1-were drilled in 60 m of water. EM-1 found 164 m of good quality, gas-bearing reservoirs, while WS-1 found 72 m of reservoirs.

Total said the discoveries lie a few kilometers from, and will be developed in connection with Stupa field. A development plan for Stupa field was submitted to Indonesian authorities in July.

Work on Mahakam block was carried out with Indonesian firm PT Apexindo Pratama Duta Tbk., which has five drilling rigs operating for Total in Indonesia.

Total, operator of Mahakam block, holds equal interest with Inpex.

Statoil stops oil development work at Snohvit

Statoil AS and partners have decided to cease oil zone development work at Snohvit field in the Barents Sea as analyses show its development would not be economical.

“This decision is final,” said Geir Pettersen, senior vice-president for the Tromso Patch business cluster. Pettersen said the upcoming startup of gas production from Snohvit will prevent the oil zone being developed at a later stage.

Earlier this summer the partnership drilled an appraisal well in the Snohvit structure to confirm the presence of oil and the thickness of the oil zone in its western part. The well confirmed the presence of oil.

Drilling & Production - Quick Takes

BHP starts oil production from Genghis Khan

BHP Billiton, on behalf of partners Hess Oil Corp. and Repsol-YPF SA, has begun oil production from the Genghis Khan development in the deepwater Gulf of Mexico 120 miles off Louisiana.

The BHP-led group acquired an interest in Genghis Khan earlier this year for $1.33 billion. The development, which has pegged gross reserves of 65-170 million boe, may include as many as seven production wells (OGJ Online, Nov. 12, 2006).

Currently, production is flowing from a single well connected to a subsea manifold on Green Canyon Block 652. A second well is being drilled, and two more wells are to follow shortly. One of these additional wells is slated to test Green Canyon Block 608.

The produced oil is transported to a third-party owned and operated facility where it is processed and sent via existing pipelines to markets in Texas or Louisiana. The oil is sold as a blend, commingled with crude oils from other pipeline shippers.

The Genghis Khan development comprises the western flank of the Shenzi structure, which lies on adjacent blocks in 4,300 ft of water. The Shenzi project is also being developed by the same BHP-led group. Interests in the Genghis Khan and Shenzi developments are operator BHP 44%, and Hess and Repsol-YPF, 28% each.

“This project allows us to optimize the development of the reserves at Shenzi-Genghis Khan, providing flexibility in selecting well locations, production facilities, and the pace of development to capture the most value possible over the expected 25 to 30-year life of the field,” said J. Michael Yeager, chief executive for BHP Billiton Petroleum.

Genghis Khan is one of three fields BHP has in development in the deepwater gulf that is scheduled to come on stream this year.

The Atlantis and Neptune fields, which are also in the Western Atwater Foldbelt region of the gulf, are expected to begin production by yearend. These three projects, combined, boost BHP’s net production in the region to more than 100,000 b/d of oil. In the 12-month period ending June 30, the company’s production from the gulf averaged 12,000 boe/d.

Austral Pacific producing from Cheal oil field

Austral Pacific Energy has completed commissioning of the small Cheal oil field in the Taranaki basin, onshore New Zealand, and the field was scheduled to be opened officially on Oct. 8.

Commissioning began in early August, and the production facilities have already produced 14,000 bbl of oil and 5.9 MMcf of gas.

The field comprises four active wells plus two more in an advanced planning stage. Proved and probable reserves are put at 2.6 million bbl and about 1.8 bcf of gas.

Operator Austral Pacific holds 69.5%, and Calgary-based independent Tag Oil Ltd., 30.5%.

Soco plans well on Block 16-1 off Vietnam

Soco Vietnam Ltd. is preparing to drill the Voi Nau 1X (VN-1X) exploration well on the AA prospect on Block 16-1 off southern Vietnam. Drilling is expected to take 20 days.

The AA prospect is on trend with Voi Trang oil field, which was discovered in 2002 by the Voi Trang 1X well.

The planned VN-1X well will be drilled with the same rig used to drill the recent Te Giac Lam 1X (TGL-1X) exploration well, which is also on Block 16-1 and the first well on Prospect O.

The TGL-1X well, drilled to 3,697 m TD, was designed to test a Miocene four-way closure on one of the basement ridges that appear on seismic to be analogous to Te Giac Trang field, discovered to the east.

TGL-1X was deepened to intersect the Oligocene sands. Although the well was drilled overpressured, mud log data indicated 70 m of sand with good oil shows in the Oligocene section. However, a test of this interval found that the sands at this location were tight, and further testing was discontinued. The test data will be further analyzed to determine future drilling on this new play type, Soco said. Meanwhile, the TGL-1X well will be plugged and abandoned.

After drilling the VN-1X well, the rig will be fitted with high-pressure equipment, including a 15,000 psi blowout preventer, to enable testing of the Te Giac Den 1X (TGD-1X) well on Prospect E.

The TGD-1X well encountered hydrocarbons in two Oligocene clastic sequences, which were separated by a volcanic layer. Well logs over the upper sequence, the object of the impending test, indicated about 30 m of net pay.

After drilling through the volcanics, the well also encountered a deeper high-pressure clastic sequence with oil and gas shows. A further 300 m of sediment is interpreted above the basement. This interval will not be reentered on this test, but will be redrilled later in the drilling program, Soco said.

Murphy advances development of Azurite oil field

Murphy West Africa Ltd. has let an engineering, procurement, fabrication, testing, installation, and precommissioning contract to Technip for the development of Azurite oil field on Mer Profonde Sud (MPS) block, which covers more than 800,000 acres in 1,400 m of water 80 miles off Congo (formerly Zaire).

The $110 million contract covers two production and one water injection flexible risers, two production jumpers, and one umbilical. Technip also will supply 10 well jumpers and provide transportation, installation, and precommissioning for subsea equipment supplied by Murphy West Africa.

Technip’s operations and engineering center in Paris will carry out the contract. Flexi France, one of the Group’s flexible pipe plants in Le Trait, France, will manufacture the flexible pipe. The umbilical will be manufactured by Duco, Technip’s subsidiary based in Newcastle, UK.

Offshore operations will be carried out using one of the Group’s construction vessels during fourth quarter 2008.

Murphy, MPS block operator and 85% interest holder, made the Azurite discovery in early 2005 with the Azurite Marine-1 well. It encountered 160 ft of net oil pay with no associated water in multiple Lower Miocene reservoirs (OGJ Online, Mar. 29, 2005).

The discovery was appraised with a well that tested at 8,000 b/d of oil from one zone. A third well in early 2006 further appraised the Azurite area, and the field development plan was approved in late 2006.

Processing - Quick Takes

Chad, CNPC to build refinery near N’Djamena

China National Petroleum Corp. subsidiary CNPC Service & Engineering Ltd. has signed an agreement with the government of Chad for joint investment in a refinery north of N’Djamena.

The CNPC unit will oversee all engineering construction and will adopt Chinese design specifications, manufacturing standards, and mechanical equipment. No details of timetables, costs, or construction were announced.

In January, CNCP International (Chad) Ltd., also a CNPC subsidiary, bought EnCana Corp.’s exploration assets in Chad for $202.5 million (OGJ Online, Jan. 15, 2007).

Lurgi to supply units for Gdansk refinery upgrade

Grupa Lotus SA has let a €182 million contract to Lurgi SA for the construction of an oil distillation unit, a vacuum distillation unit, and a hydrogen plant for its 120,000 b/cd refinery in Gdansk, Poland.

The oil and vacuum distillation complex will have total capacity of 4.5 million tonnes/year. The hydrogen plant, which is designed to process various feedstocks such as natural gas, naphtha, and liquid petroleum gas, will have a capacity of 7 tonnes/hr. It is slated to be commissioned in second half 2009.

The contract follows the €472 million lump-sum, turnkey contract awarded in July 2006 to Technip for design of the 45,000 b/d mild hydrocracking unit for the Gdansk refinery. This unit is expected to go on stream in fourth quarter 2010 (OGJ Online, July 18, 2007).

The projects form part of Lotos’s comprehensive technical upgrade program to increase throughput capacity at the Gdansk refinery by 75%, to 10.5 million tonnes/year.

Hunt Refining settles air pollution charges

Hunt Refining Co. and Hunt Southland Refining Co. agreed to pay a $400,000 fine and spend more than $48.5 million for new and upgraded pollution controls at three refineries, the US Department of Justice and Environmental Protection Agency jointly announced on Sept. 28.

They said the settlement resolves alleged violations of the federal Clean Air Act and is expected to reduce by more than 1,250 tons/year the harmful emissions from the company’s refineries in Tuscaloosa, Ala., and Sandersville and Lumberton, Miss. The plants have a combined throughput capacity of nearly 70,000 b/d.

New pollution controls to be installed under the agreement will reduce annual nitrogen oxide emissions at the refineries by 150 tons and sulfur dioxide by almost 1,100 tons when fully implemented, according to DOJ and EPA. The controls also will reduce the plants’ volatile organic compound and particulate matter emissions, the federal agencies said.

Hunt also agreed to spend $475,000 on projects to benefit the environment. The company has agreed to upgrade controls to reduce VOC emissions from the Tuscaloosa refinery’s wastewater emissions and to buy emergency preparedness equipment and train mutual aid responders in Vicksburg, Miss., and Choctaw County, Ala.

DOJ and EPA said Alabama and Mississippi joined in the settlement and will share equal portions of the fine with EPA. The consent decree, which was lodged in US District Court for the Northern District of Alabama, is subject to a 30-day public comment period and final approval by the federal court.

Transportation - Quick Takes

Five countries agree to extend Odessa-Brody oil line

Ministers from five East European countries Oct. 10 signed an agreement for construction of a crude pipeline extension that will link Caspian producers with consumers in Northern Europe.

The agreement, signed by Azerbaijan, Georgia, Ukraine, Poland, and Lithuania, calls for the building of a 490-km extension to the existing Odessa-Brody pipeline and securing supplies of Azerbaijan’s crude oil to fill the extended line.

The Odessa-Brody leg of the pipeline from Odessa to Brody was completed in 2004, and the extension will stretch from Brody to Plock, in central Poland, and from there to the port of Gdansk.

The pipeline will transport 14 million tonnes/year of crude.

Spectra gauges interest in Texas Eastern expansion

Spectra Energy Transmission plans another capacity expansion of its 9,040-mile Texas Eastern pipeline system that connects Texas and the Gulf Coast to the US Northeast.

The company has started to gauge shipper interest in the project, designated the Time 3 Project, via a binding open season through Nov. 16.

The Time 3 Project involves expanding the pipeline system from a point in Oakford, Pa., through the addition of compression and pipeline looping. Existing rights of way will be used, where possible, to minimize environmental impacts, Spectrum said.

The project will provide many potential receipt points, including existing gas storage fields in Oakford and the proposed Steckman Ridge gas storage project in Bedford, Pa.; points to be created by its proposed Northern Bridge project, which is designed to move western supplies from Clarington, Ohio, to the Oakford area; and interconnections to numerous other gas pipelines.

At an estimated $300 million, the Time 3 Project is expected to be placed into service in late 2010.

PTT lets contract for Rayong gas plants

PTT PLC, Thailand’s largest integrated energy group, has awarded contracts worth $1.1 billion to Samsung Engineering Co. of South Korea to build two natural gas separation plants, each capable of processing 800 MMcfd of gas.

The plants will be built on a turn-key basis in Rayong, about 180 km southeast of Bangkok for completion in March 2010, reported PTT executives.

The plants form part of a new gas system PTT is constructing to ramp up gas throughput from the Gulf of Thailand to meet the country’s increasing appetite for energy.

PTT is completing a third trunk line that will provide a throughput capacity of 750 MMcfd, enhancing deliveries through decades-old transmission lines that are operating at capacity limits of 1,800 MMcfd (OGJ Online, June 22, 2007).

EPP places MAP pipeline expansion in service

Enterprise Products Partners LP (EPP) has placed into service the final phase of its 50,000 b/d expansion of the Rocky Mountain portion of its 2,500-mile long Mid-America Pipeline (MAP) system, increasing the system’s capacity to 275,000 b/d from 225,000 b/d.

This portion of the project involved the installation of new pumps and modification of existing equipment at 20 pump stations. The initial 30,000 b/d of additional capacity was created by looping more than 160 miles of pipe, which were placed into service in April.

The expansion will enable EPP to handle natural gas liquids from two new plants: the Meeker gas processing plant in northwestern Colorado’s Piceance basin, which is expected to be in service in the coming weeks, and the Pioneer cryogenic facility near Opal, Wyo., which is on schedule to begin operations by yearend.

In addition to the Rockies project, EPP in the second quarter completed a 190-mile, 12-in. expansion of its MAP system between Conway, Kan., and Skellytown, Tex., along with installation of additional compression. As a result, capacity for mixed NGLs between Conway and Skellytown increased by 67,000 b/d, while 48,000 b/d of incremental capacity is now available between Skellytown and the Hobbs station adjacent to EPP’s new fractionation complex in Gaines County, Tex.